Netherlands

ABOUT NETHERLANDS

The Netherlands is potentially one of the best places in the world to conduct business over the next five years, according to the Economist Intelligence Unit’s latest business environment rankings. There are many reasons for you to do business in the Netherlands. For example, the favorable fiscal climate, the macroeconomic environment and the infrastructure. Additionally, the Netherlands is an important gateway to many other countries in Europe. Dutch corporate law provides a flexible and liberal corporate framework for the organization of branches and subsidiaries by nonresident companies or private individuals. There are no special restrictions on foreign-owned companies planning to start a business in the Netherlands.

Advantages of doing business in Netherlands

Possible to register a Dutch limited liability company within 4 weeks with 1 director and 1 shareholder, who can be of any nationality. There is no minimum share capital requirement ( and our clients do not need to travel to complete the engagement)

Dutch business enjoy little government interference on their daily operations. The Netherlands is indeed ranked as the 16th easiest country to do business amongst developed countries to the world bank

Opening corporate bank account in the Netherland is inexpensive

(Clients find paying taxes is simple in Holland because everything is online and all annual tax requirements can be settled within 5 days per year.)

Running an online business in Holland is ideal, as the country has excellent broadband connectivity and is the 4th most densely cabled country in the world

Corruption is almost nonexistent in Holland as it is the 8th least corrupt country in the world

Property is well protected in Holland, as it is the 5th best country in the world according to the International property rights index

Firms do not require an annual audit if they have less than 8.80 million turnover and less than 50 employees

Dutch resident business benefit from highly skilled employees with a 99% literacy rate, a 59% English proficiency rate, a 94% computer literacy rate and a 64% rate for high school completion

Dividends and capital gains remitted to a resident parent company are tax exempt, if less than 50% of the assets are passive. Reduced withholding tax rates of up to 0%, if the funds are remitted to a parent company incorporated in one of the 100 countries that have signed a double tax agreement with Holland

Netherlands resident companies can carry forward their business losses indefinitely, for up to 200 000€ annual plus 25% of subsequent profits exceeding that amount

Disadvantages of doing business in Netherlands

Running a business in the Netherland is expensive because:

Taxation on business in the Netherlands is punitive, with an effective tax rate of 25% including a corporate tax of 25% VAT on sales at 21% and employers social security contribution of 31% on salaries

Labor is expensive in Holland as the minimum wage is 1490€ per month

The annual rent in Amsterdam is high at 370€ per square meter

Constructions permit as a fee of 18 608€ is imposed and it takes 98 days to process

Foreign entrepreneurs will need to translate official company registration documents as they are mainly in Dutch

A resident business will need to hire a resident company secretary.

59% of the land surface in the Netherlands is prone to flooding, consequently, the risk of flooding may incur additional business costs.

The World Bank “Ease of doing Business -ranking”

Overall rank 2016:

rank 28th (change in rank: -3)

– Starting a business:

rank 28 (average processing time 4 days)

– Dealing with construction permits:

rank 85 (change in rank -6)(average processing time 161 days)

– Getting electricity:

rank 43 (average installation time 110 days)

– Registering property:

rank 30 (average processing time 2.5 day)

– Getting credit:

rank 79

– Protecting minority investors:

rank 66 (change in rank -2)

– Paying taxes:

rank 26 (average company tax from profits 41%, average time used for taxation 123 hours per year)

Personal taxation

The 2001 Personal Income Tax Act distinguishes three types of income that are subject to personal income tax and classifies them under “Box I,” “Box II,” and “Box III.”

• Box I income includes profits, employment income, income from other activities and income deemed to have been generated from residential home ownership.
• Box II income includes income from shares in case of substantial interest of 5 percent or more.
• Box III income includes income from savings and investments. Each box has its own rules for determining the tax base and its tax rate.

Income in Box I is taxed at a progressive rate with a maximum of 52 percent. Box II is taxed at a flat rate of 25 percent (2016) and income in Box III is taxed at a flat rate of 30 percent. Box III income is set at a fixed notional yield of 4 percent of the taxpayer’s average equity. There are impermeable “walls” between the three boxes: losses that the taxpayer incurs in Box I may be set off (i.e., carried backward or forward, against Box I income only) and the same applies to losses in Box II. The taxable income in Box III is calculated at 4 percent of the fair market value of the taxpayer’s property, minus the amount of the taxpayer’s outstanding debts and a basic allowance of EUR 24,437 (for 2016). In other words, the tax burden on savings and investments that fall within the scope of Box III, minus debts and basic allowance, is 1.2 percent (4 percent of income x 30 percent tax rate).

Business profits in income tax

In general, this is taxation on entrepreneurs who earn profits in one-man businesses or small companies without limited liability. The total profit minus the relevant entrepreneur’s deductions and the tax deduction for small and medium-sized businesses or enterprises (“SMEs”) is the basis of taxation. In the Netherlands, there has been a long tradition of government support for entrepreneurship. Therefore, certain tax reductions are available for entrepreneurs.

Dutch citizenship

There are several conditions under which a foreigner can claim Dutch citizenship. In general, many foreigners are eligible to apply for Dutch citizenship after living in the Netherlands for at least three or five years – depending on their individual situation – or less if they have close family ties in the Netherlands. A person’s individual circumstances will dictate which conditions and documents are required for applying Dutch citizenship.

If you don’t qualify for Dutch citizenship you could consider Dutch or European permanent residence, also available to foreigners after five years of residence (or less in some cases), which allow you to live indefinitely in the Netherlands without requiring a work permit, although with less rights than Dutch citizenship.

Permanent residence versus Dutch citizenship

Both Dutch citizenship and Dutch permanent residence allow you to stay in the Netherlands indefinitely, although a permanent residence must be renewed every five years. Similar to Dutch citizenship, with a Dutch permanent residence permit you are free on the Dutch labour market, meaning you no longer need a work permit.

Certain social and civic rights are only offered to those that become Dutch citizens, for example voting, although foreigners are typically required to renounce their own citizenship before they can become a Dutch citizen, although dual nationality is allowed in certain cases (see below).

How to get Dutch citizenship

There are two principal ways to acquire Dutch citizenship:

Option procedure

Naturalisation procedure

If you have birth or family ties to the Netherlands – such as you were born in the Netherlands or have a Dutch parent (including adoptions and children born abroad) – you can also qualify for citizenship if you meet the IND’s requirements.

Option procedure

The option procedure is the easiest way, so it is worth initially seeing if you qualify for this process. Applying for citizenship via this route has certain advantages over the naturalisation procedure, such as:

there are less requirements to apply;

the process is usually quicker, taking up to three months instead of one year;

fees are cheaper than the naturalisation application.

To apply, you must firstly hold a valid residence document. Then you must belong to one of the following categories:

You have lived in the Netherlands or a Dutch territory for all or the majority of your life.

You have been married to or lived with a Dutch citizen for at least three years and have lived in the Netherlands for 15 years continuously.

You are over 65 and have lived in the Netherlands for at least 15 years.

One of your parents or legal guardians is Dutch and you have lived with them in the Netherlands for at least three years prior to your application.

Naturalisation procedure

The alternate citizenship procedure is to apply on the basis of naturalisation. Again, you must have a valid residence permit, but must also meet the following conditions:

You must be an adult (18 years and over).

You have either: lived in the Netherlands for an uninterrupted period of five years with a valid residence permit; been married to a Dutch national or lived with a Dutch national for three continuous years (including abroad); or you have resided in the Netherlands with a valid residence permit for a period of 10 years, with at least the last two years continuously.

You are sufficiently integrated in Dutch society and are able to read, write, speak and understand Dutch. You must prove this by taking a civic integration examination, and must pass the A2-level. If you have attained another diploma or degree (in Dutch) you can be eligible for an exemption.

In the last four years you have not been subject to a custodial sentence, training order, community service order or large financial penalty (more than EUR 810).

You are prepared to renounce your current nationality. If you do not do this your Dutch citizenship may be withdrawn (although some exceptions exist for dual nationality).

You have a valid permanent residence permit or a valid residence permit for a non-temporary purpose, for example, family reunification.

Applications on the basis of naturalisation take approximately one year.

Applying for Dutch citizenship

Applications are made via your local municipality, where you will have to pay the fees upfront. The municipality will check your details and send your request with a recommendation from the mayor to the IND. The IND then investigates whether you can become a Dutch citizen.

Documents required:

Passport

Residence permit

Birth certificate and those of your children (if applicable)

Marriage certificate (if applicable)

Civic integration certificate or other diploma.

Dutch citizenship for children

If you have children who are under 16, they can become Dutch citizens upon naturalisation if they have lived in the Netherlands for the previous three years and held a valid residence permit. You must include their application with your own.

Once a child reaches 18 they must request naturalisation. This should be taken into consideration for children aged 17 whose application might be void if they turn 18 before their citizenship is approved, as processing time is estimated at one year.

Civic Integration examination

Acquiring Dutch citizenship via naturalisation requires you to demonstrate that you have integrated into Dutch society. This means being able to speak, read, write and understand Dutch reasonably well and being able to successfully live in Dutch society.

The language level required is A2, which would allow you to have conversations with neighbours, purchase items in shops, be able to understand the majority of news reports and write a short business letter. Once you have passed the examination you will receive a Civic Integration Certificate, which you can submit with your naturalisation application.

Almost everyone who wishes to become a Dutch citizen must take the integration examination. There are some exceptions to this, namely those who can demonstrate that they have attained sufficient knowledge of Dutch.

You might be exempt if you have a undertaken:

a state examination – this is an examination at a higher level than the integration examination, which provides access to university or higher professional education.

upper senior vocational education with language skills provision – this is language support for people who take an upper senior vocational educational programme in the Netherlands.

any form of secondary education, vocational education, professional education or university course, provided the teaching was provided in the Dutch language.

Renouncing your nationality

You will usually have to give up your current nationality in order to become a Dutch citizen, although there are some exceptions in the following situations:

Your country’s legislation does not allow you to give up your nationality.

You are married to or are the registered partner of a Dutch citizen.

You are a recognised refugee.

You cannot be expected to contact the authorities in the country of which you are a national.

You have special and objectively assessable reasons for not renouncing your nationality.

You are a national of a state that is not recognised by the Netherlands.

In order to renounce your current nationality you will have to pay a large sum of money to the authorities in your country. You must be able to demonstrate this.

By renouncing your nationality you would lose certain rights, which would cause you serious financial losses. This could include consequences in terms of inheritance law. You must be able to demonstrate this.

Before you can renounce your nationality you have to fulfill (or buy out) your military service. You must be able to demonstrate this.

Taxes in Netherlands

Residence: Companies that have their management in the Netherlands and, in principle, all companies incorporated according to Dutch civil law are regarded as Dutch resident

Basis: Residents are liable to tax on their worldwide income; nonresident are taxed only on Netherlands-source income. Exemptions may apply for certain income from shareholdings, permanent establishments (PEs) and innovative activities. Branches of foreign companies and subsidiaries are treated the same way in determining corporate income tax, although branches usually are exempt from withholding tax on profit remittances to their foreign head offices.

Taxable income: Corporate income tax is due on all profits derived from conducting a business, including trading income, foreign-source income, passive income and capital gains. In principle, all costs relating t the business are deductible

Taxation of dividends: Dividends received by a Dutch resident company are exempt if the participation exemption applies. If the participation exemption does not apply, either because the holding requirement is not met or because one of three tests is not met and the subsidiary has not been subject to any form of corporate rate without a credit. If the participation exemption does not apply because one of the three tests is not met but the subsidiary has been subject to corporate income tax, a tax credit will be granted. The amount of the credit varies: the maximum credit is 5% and for EU subsidiaries a credit is granted for the actual amount of corporate income tax, up to the Dutch corporate income tax levied on the dividends

Capital gains:Capital gains derived from the sale of a participation are exempt if the participation applies. Other capital gains are taxed at the normal corporate rate. Gains arising on a (de-) merger may be exempt if certain requirements are met.

Losses: Losses may be carried forward for nine years and carried back for one year. Losses incurred in fiscal years 2009 through 2011 may be carried back for three years upon request, in which case, the term for carryforward is limited to six years. Special restrictions apply to losses incurred by a company whose activities are at least 90% finance and/or holding activities

Foreign tax credit: Profits from a PE of a Dutch company generally are exempt from the Netherlands tax base. Where a PE of a Dutch company is engaged in low-taxed portfolio activities, a tax credit will be granted for foreign tax paid on such activities. Additionally, a tax credit generally is available for foreign withholding tax on interest and royalties under the Netherlands tax treaties or , if there is not treaty, where interest or royalty income is received from a developing country

Participation exemption: The participation exemption applies to dividends and capital gains derived from shareholdings of at least 5%, provided (1) the subsidiary is not held as a mere portfolio investment; (2) the subsidiary is subject to a reasonable effective tax rate based on Dutch tax principles or (3) less than 50% of the assets of the subsidiary consist of passive assets based on the fair market value of the assets. If the participation exemption is not applicable, a credit for the underlying tax may be obtained. Group financing/licensing activities generally are deemed to be portfolio investment activities. I.e participations predominantly engaged in these activities must meet test(2) or (3) for the participation exemption to apply. As from 2016+, dividends and interest payments received are taxable if the payments is tax deductible in the country of the payer

Taxable income:

20% on the first EUR 200 000 of taxable profits, and 25% on taxable profits exceeding EUR 200 00

Taxation of dividends:

–

VAT registration:

There is no registration threshold in the Netherlands, all VAT payers are required to register

– VAT Rates:

Rates: The standard VAT rate is 21%, with a reduced rate of 6% applying for certains goods and services

Surtax:

No

Alternative minimum tax:

No

Withholding tax (general):

–

– From Dividends

:In domestic situations, dividends are exempt from withholding tax if the participation exemption applies or, for corporate income tax purposes, if a fiscal unity exists between the dividend payer and the recipient. Domestic rules implementing the EU parent-subsidiary directive provide for an exemption from withholding tax on dividends paid to EU parent companies under the same conditions as for distributions to a Dutch parent. Dividend withholding tax at 15% is, in principle. Due on dividends paid to foreign shareholders, unless the rate is reduced under a tax treaty

– From Royalties

The Netherlands does not levy withholding tax on royalties

– From Interests

The Netherlands does not levy withholding tax on interest. Interest on a hybrid loan can qualify as a dividend for tax purposes, in which case the rules for dividends appl

– Technical services

The Netherlands does not levy withholding tax on technical services fees

Transfer tax:

A 6% real estate transfer tax is payable on the acquisition of real property on the Netherlands, on certain related a rights. A reduced rate of 2% applies to the transfer of residence.

Capital gains tax:

In principle, capital gains are taxed at progressive rates in Box 1. if the gains are related to a substantial interest, a 25% rate applies in Box 2. if the gain relates to an investment, the gains are not taxed as such in Box 3. There is no capital gains from the sale of a dwelling

Real property tax:

Municipalities imposes an annual tax at varying rates on owners of real property. Real estate tax is deductible for corporate income tax purposes.

Social security:

Social security contributions on employment income are payable by the employer and the employee. The contributions are calculated on gross salary, less pension premiums withheld from the salary. An income-dependent health insurance contribution, disability insurance contribution and unemployment insurance contribution also are levied.

Payroll tax:

No

Stamp duty:

No

Capital duty:

No

Tax treaties:

The Netherlands has concluded more than 95 tax treaties

Anti-avoidance rules:

– Transfer pricing

Incomparably pricing for goods and services must be at arm’s length and documentation must be maintained on intragroup transactions. Acceptable transfer pricing methods include the comparable uncontrolled price, resale price, cost plus, profit split and transaction net margin methods, with transaction-based methods preferred over profit-based methods. It is possible to enter into an advance pricing agreement for the use of a certain transfer pricing method

– Thin capitalization rule

The thin capitalization rules have been abolished and replaced with new rules. The new rules disallow the deduction of interest costs relating to excess debt associated with the acquisition price of participation’s. The excess debt for purposes of this rule is calculated based on a mathematical rule, under which operational participation’s acquired from a third party generally are excluded

– Disclosure requirements

No

Compliance for corporation:

Tax year: The tax generally corresponds year, although a deviating year may be used if so provided in the company’s articles of association. The tax usually is 12 months, but shorter or longer periods are permitted in the year of incorporation.

Consolidated returns: Provided certain conditions are satisfied, a parent company may form a fiscal unity with one or more of its subsidiaries, under which the losses of one company may be offset against the profits of another company and fixed assets of one company may be transferred to another company without corporate income tax consequences. To qualify for fiscal unity status, the parent company must own at least 95% of the statutory voting rights and must be entitled to at least 95% of the profit and capital of the subsidiary. The parent company and the subsidiaries must have the same financial year. Under certain conditions, a Dutch PE of a foreign company may be included in a fiscal unity. The Dutch government has proposed a tax law amendment that will expand the possibilities of forming a fiscal unity via a company that is based in a different EU member state. The new rules also will broaden the possibilities of forming a fiscal unity with a foreign-based company that has a Dutch PE.

Filling requirements: A provisional assessment, generally based on information from the previous two years, usually is issued in the first month of the taxpayer’s financial year. This assessment is payable in monthly installments for the remaining months of the year. Corporate income tax returns must be filed annually, within five months of the end of the fiscal year. Businesses are expect to file all returns electronically. The tax return should be accompanied by all information required to determine taxable profits, including the balance sheet and profit-and-loss account and any other information requested by the tax inspector. If a company does not meet these obligations or does not file a proper tax return, the inspector may issue an estimated assessment.

Penalties: Administrative penalties may be imposed for late filing or failure to file a Dutch return, or for the late payment or nonpayment of tax. Criminal penalties may be imposed if the Dutch authorities can prove fraud or gross negligence

Rulings: A taxpayer may request an advance ruling from the tax authorities on the application of the participation exemption to holding companies in international structures, the use of hybrid financing instruments and hybrid entities; the existence of a PE in the Netherlands; or the classification i.e. group services or shareholder activities.

Personal Taxation in Netherlands 2016

Personal taxation basis:

Residents are taxed on their worldwide income. Nonresidents are taxed only on their Netherlands-source income. Under certain conditions, foreign individuals with Netherlands-source income are treated as a limited national taxpayer, in which case they are taxed on foreign-source income but are entitled to certain credits.

Tax Residence:

Residence is based on factors such as employment, family circumstances etc.

Filling status:

Married couples must file a joint assessment unless a petition for a divorce has been filed. Unmarried couples must file a joint assessment if certain conditions are satisfied.

Income tax rates in Netherlands:

Box 1 income is subject to progressive rates of 36.5% up to 52% with 14% base deduction for entrepreneurs, Box 2 income is taxed at a rate of 25% and under Box 3 a fixed presumed gain of 4% is taxed at a flat rate of 30%

Social security payments in Netherlands:

State social security contributions are payable by all individuals resident in the Netherlands. Additional social security contributions are payable by employees and the self-employed

Inheritance/estate tax in Netherlands:

Inheritance tax is due on inheritances received from Dutch residents. Dutch nationals who emigrate from the Netherlands still are considered residents during a 10-year period. Rates vary between 10% and 40%

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